Singapore Exchange: Regulation Run Amok

Saw an item in the local paper today about some trader who got hit by Monetary Authority in Singapore for 'manipulation.' Odd thing is, I didn't see anything in their conduct that ought to warrant censure.

Have a look for yourself - in the first instance three traders were fined and had their licenses stripped for short selling a stock against a short warrant (option) position they held.

In the second instance a trader painted the tape on an illiquid issue in order to avoid margin call.

In the first instance, the traders assumed risk on both sides of their trade and were lucky, or astute enough to come out the other end with a profit. MAS' use of the term 'manipulation' is so loaded ...

As for the second instance, the issue should have been between the trader and his broker.

2. On 10 February 2006, Mr Teo, Mr Foong and Mr Ng engaged in trading to deliberately depress the price of Olam International Ltd shares in order to profit from short-selling Olam covered warrants. Mr Foong and Mr Ng first short-sold a large number of Olam covered warrants. Mr Teo followed by selling Olam shares at progressively lower prices to push down the price of the shares. This resulted in a fall of the warrant price which enabled Mr Foong and Mr Ng to buy back the covered warrants at lower prices. They earned a net profit of $87,000 which was shared equally among the three persons.

3. Mr Teo, Mr Foong and Mr Ng have fully cooperated with MAS in the course of the investigation and have admitted to civil penalty liability for contravening section 197(1)(b) of the SFA. They have each paid a civil penalty of $70,000 to MAS without court action. MAS has also suspended the Capital Markets Services representative licences held by Mr Teo, Mr Foong and Mr Ng for one year.

4. Mr Shane Tregillis, Deputy Managing Director (Market Conduct), MAS, said, "Trading with the intent to artificially affect the price of an underlying share so as to profit from the resulting change in the warrant price is not acceptable market practice. It undermines the integrity of the equity and derivatives markets. MAS will not hesitate to take action against anyone who engages in such activities."

5. This matter was referred to MAS by SGX-ST. Civil penalty investigations were carried out by MAS according to standard operating procedures."

i think it is the 'intent' that is the problem.....they were manipulating the market to get out of their stuck position............they were not trying to get a fair market price for themselves on the one side.........of the trade....they were artificially and knowingly trying to "not get the best price" or depress it...............(unless i read this too quick)...........its no different than delibertly taking a loss on part of a position to artificially corner the market and booost up prices for a net portfolio win....i.e., taking suppply of copper off the mrket by buying it up.....even at a loss on those specific trades....."the intent part plays-----b/c the traders know going in that they will take a loss/make bad trades so that the market will not function normally...and thus it is the artificial market that they are purposely trying to create.